Fortum Oyj — Company Analysis 2025

Company Overview and Business Model

Low-carbon generation anchors a more focused utility model

Fortum Oyj has become a much cleaner and more focused Nordic utility after the disposal of non-core activities, with the business now built around low-carbon power generation, customer energy supply, and selected heat and flexibility assets. In FY2025, reported revenue was EUR 4,989m, down from EUR 5,800m in FY2024, reflecting lower power prices, lower production volumes and the absence of divested recycling and waste operations 8. The revenue base is split across three reporting segments: Generation at EUR 3,245m, Consumer Solutions at EUR 3,029m, and Other Operations at EUR 187m, with group revenue reduced by Nord Pool netting of EUR -1,136m and eliminations of EUR -336m 8. That composition matters because it shows Fortum Oyj is not simply a merchant power producer. It combines upstream production with downstream retail and heat exposure, which softens earnings volatility even when wholesale prices weaken.

The economic engine is clearly the Generation segment, which in our view is also the most attractive part of the portfolio. It produced comparable EBIT of EUR 893m in FY2025 versus EUR 122m for Consumer Solutions, while Other Operations remained loss-making at EUR -91m 8. Generation benefits from a structurally advantaged asset base: Nordic hydro, nuclear and wind production totaled 41.6 TWh of wholesale output in 2025, and the broader generation mix reached 42.3 TWh, of which 18.5 TWh came from hydro, 22.1 TWh from nuclear and 1.0 TWh from wind 13 19. The pricing model here is partly merchant, but not fully spot-exposed. Fortum Oyj realized an achieved Nordic power price of EUR 51.4/MWh in 2025, well above the combined area spot price of EUR 38.5/MWh, supported by hedging and physical optimization 14. That spread is strategically important because it shows the company is monetizing flexibility and trading capability, not just installed capacity.

Consumer Solutions is less spectacular but strategically valuable because it adds recurring customer relationships and margin stability. The segment serves more than 2.0 million customers, including 2.25 million electricity customers and 40 thousand gas customers at year-end 2025, with total customer count at 2.32 million 15. Its revenue model is based on retail electricity and gas sales, plus value-added services, where margins depend more on procurement discipline, churn control and operating efficiency than on outright commodity prices. That explains why comparable EBIT rose 61% year-on-year to EUR 122m in 2025 despite revenue slipping 1% to EUR 3,029m 15. In our view, this is the segment that improves group resilience, but it is still less defensible than Generation because customer switching barriers in retail energy remain modest.

A defensible position in the Nordic power value chain

Fortum Oyj occupies a strong position across the Nordic electricity value chain, from production and optimization to retail delivery and district heating. The company describes its portfolio as based on hydro and nuclear generation, power flexibility and optimization, demand-driven renewables, consumer business, and district heating and cooling 7. This is a defensible place to sit because the hardest assets to replicate are exactly the ones Fortum Oyj already owns: 4.7 GW of hydro assets, long-life nuclear capacity, and established heat networks 12. New entrants can build wind and solar, but they cannot easily recreate regulated permits, reservoir systems, nuclear operating know-how, or urban heat infrastructure.

The geographic footprint is concentrated where Fortum Oyj has competitive relevance. The core production and retail markets are Finland, Sweden, Norway and Poland, while customer and industrial offerings are centered on the Nordics with gas and power retail also in Poland 15 43. Revenue exposure is therefore tied mainly to Northern European power and retail markets rather than a broad pan-European footprint. That concentration raises market dependency, but it also means management is operating in regions where it has scale, brand recognition and infrastructure depth. The state’s 51.26% ownership stake further underlines the strategic importance of the company in Finland, even if it can also limit strategic flexibility at the margin 30 31.

Quality assets, but still a utility with real operating and policy risk

The business model is defensive, but not low-risk. First, earnings remain meaningfully exposed to wholesale power prices and production availability. Management states that a EUR 1/MWh change in achieved Nordic wholesale power price would move annual comparable EBIT by about EUR 47m under normal production conditions 19. Second, nuclear and hydro outages matter materially. In 2025, unplanned outages, mainly at Oskarshamn 3, had a 3.9 TWh negative effect on nuclear output, which was a major reason Generation earnings fell 14. Third, regulation remains a live risk. Swedish property tax on hydro and nuclear rose by about EUR 30m annually from 2025, with the new annual level around EUR 45m through 2030 20. Fourth, growth in renewables and industrial decarbonization is still conditional on demand visibility and permitting. Fortum Oyj had about 8 GW of onshore wind and solar projects in permitting at the end of 2025, but management explicitly notes that only a small share of early-stage projects is expected to reach ready-to-build status 6 14.

Overall, Fortum Oyj’s business model is stronger today than it was several years ago because it is simpler, cleaner and more anchored in scarce Nordic infrastructure. The trade-off is that it is now more transparently exposed to the normal utility variables of power prices, asset availability and policy design, which makes quality and capital discipline the central determinants of long-term value creation.

Investment Profile

Fortum Oyj offers a clearer investment case today than it did a few years ago. The attraction is not high structural growth, but a combination of low-carbon Nordic generation, resilient customer operations, and a balance sheet that still leaves room for dividends and selective investment even after earnings have normalized from crisis-era highs. In our view, that makes the shares more compelling for defensive and income-oriented investors than for investors seeking rapid volume growth. The counterargument is equally clear: earnings remain meaningfully exposed to wholesale power prices, hydrology, and nuclear availability, so the stock is not a bond proxy and should not be valued as one.

For portfolio fit, Fortum Oyj suits a defensive utility investor first, and a value-oriented investor second. The company generated a 10.9% return on capital employed in 2025, down from 13.0% in 2024 but still healthy for a capital-intensive utility with a 52% equity ratio 5. That combination suggests a business that can still earn above a plain regulated-utility profile without taking excessive balance-sheet risk. It is less suitable for pure growth investors because management itself frames the medium-term improvement as operational rather than transformational: Fortum Oyj targets a EUR 330m increase in comparable EBIT by 2030 from a EUR 930m baseline, driven by availability, efficiency and organic measures rather than assuming help from power prices, acquisitions or major new-build projects 7 20. That is credible, but it is an optimization story, not a hyper-growth one.

The most important value driver is the quality of the generation fleet and the earnings sensitivity embedded in it. Fortum Oyj’s Nordic wholesale production is roughly 47 TWh in a normal year, and management states that a EUR 1/MWh change in achieved wholesale power price would move annual comparable EBIT by about EUR 47m under normal production conditions 19. That is a large earnings lever, but it is not just a commodity bet. The company had 75% of estimated Nordic wholesale sales hedged for 2026 at EUR 41/MWh and 55% for 2027 at EUR 40/MWh at year-end 2025, which dampens downside but also caps upside 19. In our view, this is exactly why Fortum Oyj works best in a diversified institutional portfolio: it offers exposure to long-term electrification and low-carbon power demand, but with more earnings protection than an unhedged merchant generator.

A second driver is operational recovery potential. Nuclear availability was above 75% in 2025 against a strategic target of above 90%, while hydro availability was above 94% against a target above 95% 7. That gap matters because it implies that part of the earnings weakness is operationally fixable rather than structurally lost. Management also expects nuclear output in 2026 at 24.0 to 24.5 TWh, which points to a rebound from the disrupted 2025 level if outages normalize 19. We see this as one of the more tangible upside factors in the case.

The third driver is the gradual broadening of earnings quality outside pure generation. Consumer Solutions delivered record comparable EBIT in 2025 and reached a 18.3% return on capital employed on EUR 718m of capital employed, up from 11.2% on EUR 725m a year earlier 15. That matters because it shows Fortum Oyj can create value in retail and services without tying up much additional capital. If this segment continues to improve margins while generation normalizes, group earnings become less volatile and the equity story becomes more defensive.

The risks are real and should not be understated. Power prices remain the largest external swing factor. Nordic system price averaged EUR 39.7/MWh in 2025, and prices in Fortum Oyj’s key areas can diverge sharply, with Sweden SE2 at only EUR 16.5/MWh versus Germany at EUR 89.3/MWh 11. That regional spread can pressure realized pricing and asset values in low-price zones. Operationally, the report shows how painful outages can be: unplanned stoppages at Oskarshamn 3 alone had a negative effect of 3.9 TWh on 2025 nuclear output 14. On the policy side, Sweden’s annual property tax increase lifted the run-rate burden by about EUR 30m from 2025, taking the annual level to around EUR 45m through 2030 20. That is a good reminder that even a low-carbon asset base is not insulated from regulatory extraction.

Dividend support remains one of the strongest reasons to own Fortum Oyj. The board proposed a 2025 dividend of EUR 0.74 per share, equal to about EUR 664m in total distribution, and corresponding to 90% of comparable EPS 32. The formal policy is a 60% to 90% payout of comparable EPS, with the upper end used when the balance sheet is strong and investment needs are limited 7 32. We view the current dividend as sustainable, but not immune. Management notes that pro forma leverage would rise to 1.7x net debt to comparable EBITDA after the proposed payout, still below the 2.5x ceiling tied to maintaining at least a BBB rating 6 7. That leaves room, but not unlimited room, if power prices stay weak or if growth capex accelerates.

Overall, Fortum Oyj looks best suited to investors seeking a defensive, cash-generative utility with moderate operational upside rather than a high-growth decarbonization pure play. The shares should benefit if nuclear and hydro performance normalize and if retail earnings remain firm, but the valuation case ultimately depends on whether investors are being adequately paid for commodity price risk, outage risk, and policy risk embedded in an otherwise high-quality Nordic asset base.

Strategy

Strategy rests on operational excellence first, growth optionality second

Fortum Oyj’s strategy is now notably more disciplined than expansive. The company is prioritising three areas: reliable energy delivery, industrial decarbonisation, and renewal and development, with the portfolio centred on hydro, nuclear, optimisation, customer solutions, district heating and selected renewables development 6 7. In practice, this means management is no longer promising step-change growth from large greenfield bets. Instead, it is trying to extract more value from an already high-quality Nordic asset base while preserving a BBB category balance sheet and paying out 60 to 90% of comparable EPS as dividends 7. We view that as strategically sensible for a utility whose competitive edge lies in low-carbon generation and trading capability, but it also makes execution highly dependent on plant availability and power market conditions rather than on self-help alone.

The most important test of credibility is whether targets are being met. On that score, the picture is mixed rather than uniformly strong. Fortum Oyj completed its efficiency programme and reduced annual fixed costs by EUR 100m by the end of 2025, with 2026 fixed costs expected at around EUR 870m including a roughly EUR 20m Swedish property tax increase 6 20. That is a meaningful achievement because it directly supports the company’s target to lift comparable EBIT by EUR 330m by 2030 from a EUR 930m baseline through availability, efficiency and organic growth, excluding acquisitions, investments and power price changes 7 20. However, the operational KPIs show where the strategy still falls short. Nuclear availability was above 75% in 2025 against a target above 90%, while hydro availability was above 94% against a target above 95% 7. For a strategy built around extracting more value from existing assets, missing the nuclear availability target by more than 15 percentage points is not a minor issue.

What stands out is that Fortum Oyj is executing best where it already has established capabilities. The optimisation margin reached EUR 9.7/MWh in 2025, above the 2026 target range of EUR 8 to 10/MWh and ahead of the longer-term EUR 6 to 8/MWh ambition from 2027 onward 6 7. Customer satisfaction also reached the target level of 76, and the balance sheet target is comfortably met with BBB+ ratings from both S&P and Fitch and leverage at 1.2x comparable EBITDA 7 9. By contrast, the growth-adjacent targets are less convincing. Ready-to-build wind and solar capacity was only 70 MW in 2025 versus a 1.2 GW target by end-2028, even though the company has around 8 GW in permitting 7. That suggests pipeline size should not be mistaken for bankable growth.

The biggest threat to strategy execution is nuclear and hydro operational reliability, not financing. Management itself states that a EUR 1/MWh change in achieved Nordic wholesale power price moves annual comparable EBIT by about EUR 47m at normal production levels 19. But 2025 already showed that production shortfalls can be just as damaging as price moves. Unplanned outages at Oskarshamn 3 and weaker hydrology reduced hydro and nuclear output by 3.9 TWh year on year 6 14. If Fortum Oyj cannot normalise availability, the 2030 EBIT uplift target becomes much harder to believe because the strategy depends on squeezing more from the current fleet before new growth contributes meaningfully.

Our overall credibility assessment is Moderate. Fortum Oyj deserves credit for strategic focus, cost delivery, prudent capital discipline and realistic messaging on new nuclear, where management explicitly concluded that new build is not economically viable under current market conditions without support mechanisms 6 14. That realism increases trust. However, the strategy is not yet strong enough to earn a higher rating because too many of the key operational and commercial milestones remain underdelivered, especially nuclear availability, long-dated hedging progress and conversion of renewables pipeline into ready-to-build assets. In valuation terms, the strategy supports a defensive premium to more leveraged or carbon-heavy peers, but only if plant performance normalises and the promised EUR 330m EBIT improvement starts to look operationally earned rather than merely aspirational.

CEO Review

CEO review signals resilience, but with a more measured tone on growth timing

In the most recent CEO review, covering Q1/2025, Fortum Oyj’s message was that operational quality and optimisation are cushioning a softer market rather than driving a new earnings upswing. Markus Rauramo highlighted that warm weather and strong hydro inflows pushed Nordic spot prices lower, while demand remained slightly below pre-crisis levels because industrial consumption had not fully recovered 4. Against that backdrop, the CEO emphasised execution: the achieved power price was about EUR 60/MWh in the quarter, supported by a double-digit optimisation margin, and management raised 2025 optimisation guidance to EUR 7–9/MWh from EUR 6–8/MWh 4 3. The tone was therefore cautiously confident. Fortum Oyj was not describing a strong market, but it was arguing that its low-carbon fleet and trading capability can still defend profitability when prices are under pressure.

That confidence was balanced by a clearer acknowledgement of uncertainty than in the FY2024 commentary. In Q1/2025, the CEO explicitly pointed to “continuous geopolitical conflicts” and uncertain US tariff plans as factors that had increased volatility and weakened visibility for large industrial investments in the Nordics 4. Importantly, he did not question long-term demand structurally. Instead, he said customer interest remained strong, but contract appetite had shifted toward shorter 3 to 5 year agreements rather than major new long-term power sales commitments 4. In our view, that is a meaningful nuance: the long-run electrification case is intact, but monetisation may be slower than the market had hoped.

The strategic actions highlighted in the latest review were also pragmatic rather than aggressive. Fortum Oyj completed its broad study on new nuclear and concluded that, under current power market conditions, new nuclear is not economically viable if returns depend only on market power prices 4 8. At the same time, management continued to frame nuclear as a long-term option and launched a pumped hydro pre-feasibility study in Sweden to strengthen future flexibility 4 8. That is consistent with a CEO who is prioritising optionality and system value over near-term megaproject risk.

By comparison, the FY2024 CEO review carried a somewhat more constructive and expansion-ready tone. Rauramo then stressed a very strong balance sheet, with net debt to comparable EBITDA at just 0.2x, and proposed a total dividend of EUR 1.40 per share, including a EUR 0.50 extra dividend, while also pointing to over EUR 60m of fixed-cost reduction already achieved in 2024 as part of the EUR 100m programme due by end-2025 5 6. He also highlighted concrete growth preparation through Espoo Clean Heat, the Pjelax wind farm, the Czestochowa decarbonisation investment, hydrogen pilot development in Loviisa, and site development for industrial and data centre customers 5. The shift from that review to Q1/2025 is subtle but important: Fortum Oyj still sounds operationally confident, yet management is now more explicit that external conditions may delay the conversion of strategic opportunities into larger earnings growth.

Industry and Competition

Nordic power remains attractive structurally, but the earnings cycle is still in a softer phase

Fortum Oyj operates in a Nordic and broader European power market that remains structurally supported by electrification, yet tactically constrained by weak industrial demand recovery and rising low-cost renewable supply. In 2025, Nordic electricity consumption was 395 TWh, only 0.3% above 394 TWh in 2024 and still well below the 2023 level of 386 TWh’s implied pre-crisis recovery pace, while net exports from the Nordics to Continental Europe and the Baltics remained high at 42 TWh 10 11. That combination tells us the market is not short of energy in the near term. Instead, it is long low-marginal-cost supply, especially when hydro balances are healthy and wind output is strong. For a producer such as Fortum Oyj, this means the long-term demand story is intact, but the monetisation of that demand is more volatile than the headline electrification narrative might suggest.

The broader European backdrop reinforces that view. Central Western European electricity demand rose to 1,302 TWh in 2025 from 1,287 TWh in 2024, a gain of 1.2%, but management still described demand as roughly 60 TWh below pre-energy-crisis levels 10. In other words, the industry is recovering, but slowly. This matters because the investment case for Nordic generation increasingly depends on future industrial load growth from data centres, electrified industry, hydrogen and related infrastructure. Those projects can be very large, but they are also timing-sensitive and exposed to permitting, financing and policy credibility. We therefore see the market outlook as structurally positive through the 2030s, but near-term growth is likely to remain uneven rather than linear.

Pricing confirms that the cycle is in a more normal, and less lucrative, phase than in the crisis years. The average Nord Pool system price was EUR 39.7/MWh in 2025 versus EUR 36.1/MWh in 2024 and EUR 56.4/MWh in 2023, while the Finnish area price fell to EUR 40.5/MWh from EUR 45.6/MWh a year earlier 11. Sweden remained highly fragmented, with SE3 at EUR 46.2/MWh and SE2 at only EUR 16.5/MWh in 2025, a spread of EUR 29.7/MWh 11. That regional dispersion is one of the defining features of competition in Nordic power. It rewards owners of flexible, dispatchable assets in the right bidding zones and penalises undifferentiated exposure to oversupplied areas. In our view, this is precisely why Fortum Oyj’s hydro, nuclear and optimisation capabilities matter more than simple installed capacity statistics.

Barriers to entry in this industry remain high, although they differ by subsegment. In generation, hydro and nuclear are protected by very high capital intensity, long permitting cycles, environmental constraints and, in nuclear, political and regulatory hurdles. Fortum Oyj itself concluded in 2025 that new nuclear is not economically viable under current market conditions if profitability depends only on merchant power prices 6 14. That is an important industry signal. It suggests that existing low-carbon baseload assets have scarcity value even if short-term prices are soft. By contrast, onshore wind and solar development have lower technical barriers, but they increasingly face bottlenecks in grid access, local acceptance and policy design. Finland’s proposed 1.25 kilometre distance rule for wind turbines from residential buildings is a good example of how regulatory friction can slow supply growth even in otherwise attractive markets 12.

Customer bargaining power is mixed. Retail customers are price-sensitive and switching costs are modest, which keeps consumer supply competitive. Industrial customers are fewer in number but strategically more important, especially for long-term power purchase agreements. Their bargaining power is elevated because large new loads can choose location, timing and contract structure. At the same time, reliable low-carbon supply is not commoditised in the same way as generic retail electricity. That gives incumbents with scale, balance sheet credibility and dispatchable clean generation a stronger negotiating position than pure renewable developers. We think this favours Fortum Oyj relative to smaller peers, particularly as customers increasingly value firmness, guarantees of origin and flexibility rather than just nominal megawatt-hours.

The competitive field is concentrated around a handful of large Northern European utilities with different mixes of regulated networks, merchant generation and customer businesses. Fortum Oyj competes most directly with integrated Nordic players and with larger continental groups for industrial decarbonisation contracts, renewable development and capital access.

Within that landscape, Fortum Oyj’s competitive advantages are real, but they are not all equally durable. The strongest moat, in our view, is the company’s legacy asset base in Nordic hydro and nuclear. These assets are difficult to replicate, have long operating lives, and benefit from decarbonisation without requiring the same level of new capital as greenfield build-out. The second advantage is commercial rather than physical: optimisation, hedging and market access. Management’s emphasis on optimisation margins and long-term hedging reflects an industry where value increasingly comes from managing volatility, congestion and intermittency rather than simply producing energy 19. That capability is durable if supported by systems, talent and liquidity access, though it is not invulnerable.

The less durable advantages sit in retail and project development. Consumer supply can be profitable and cash-generative, but barriers are lower and customer loyalty can weaken when price competition intensifies. Likewise, renewable project pipelines are strategically useful, yet they are not a moat by themselves because many competitors can assemble land, permits and development rights. Fortum Oyj’s edge here is more selective. It can pair development with customer demand, balance sheet strength and an existing low-carbon platform. That is helpful, but still more temporary than the embedded value of hydro reservoirs and nuclear licences.

Overall, we see the industry as attractive for disciplined incumbents but not uniformly favourable for all participants. The market is growing in structural terms, with electrification, data centres and industrial decarbonisation as the key drivers. However, the current cycle remains closer to normalised or even mildly soft conditions than to scarcity pricing. In that setting, Fortum Oyj is better positioned than many peers because its competitive strength rests on hard-to-replicate low-carbon assets and system flexibility rather than on aggressive capacity expansion alone. That looks like a genuine moat in generation, while the rest of the portfolio provides useful support rather than a separate source of lasting dominance.

Financial Position

Fortum Oyj’s financial position in FY2025 shows a business that has clearly moved past the extraordinary earnings environment of recent years, but not into financial strain. Reported revenue declined to EUR 4,989m in FY2025 from EUR 5,800m in FY2024 and EUR 6,711m in FY2023, which means a 14.0% decline in 2025 after a 13.6% decline in 2024 5. The quality of that revenue contraction is important. This was not primarily a structural loss of franchise. Management attributes the decline mainly to lower power production volumes, lower achieved hedge prices, and the disposal of recycling and waste operations in 2024 8. In our view, that makes the top-line pressure more cyclical and portfolio-related than evidence of competitive erosion. The latest quarterly data supports that interpretation: Q1/2026 revenue was EUR 1,992m, up 21.3% from EUR 1,642m in Q1/2025, suggesting that the revenue base remains responsive to market conditions rather than structurally impaired.

Profitability has come down materially, but it remains healthy for a capital-intensive utility. Comparable EBITDA fell to EUR 1,240m in FY2025 from EUR 1,556m in FY2024 and EUR 1,903m in FY2023, implying an EBITDA margin of 24.9% in 2025 versus 26.8% in 2024 and 28.4% in 2023 5. Reported operating profit was EUR 939m in FY2025, down from EUR 1,325m and EUR 1,662m in the prior two years, while the operating margin compressed to 18.8% from 22.8% and 24.8% 5. Net profit after non-controlling interests was EUR 765m in FY2025 versus EUR 1,164m in FY2024 and EUR 1,514m in FY2023 5. Behind this, the main drag was Generation, where lower hydro and nuclear output and weaker hedge prices more than offset strong optimisation and a record year in Consumer Solutions 6 8. That mix matters because it suggests margins are still fundamentally supported by asset quality and downstream resilience, even if merchant earnings are normalising.

The return profile is therefore lower, but still respectable. Return on equity was 8.6% in FY2025 compared with 13.1% in FY2024, while return on assets was approximately 4.6% based on EUR 765m of net profit against year-end assets of EUR 16,444m, down from roughly 6.7% in FY2024 5 9. We would not describe this as a high-return utility at present, but it is still earning comfortably above a distressed or ex-growth profile. More importantly, the decline in returns appears tied to temporary production and pricing headwinds rather than to a damaged balance sheet or a structurally loss-making business mix.

The balance sheet remains one of the stronger parts of the investment case. At year-end 2025, Fortum Oyj reported an equity ratio of 52%, only modestly below 53% in 2024 and still well above the 45% level in 2023 5. Net debt rose to EUR 1,479m from EUR 367m a year earlier, but leverage was still only 1.2x net debt to comparable EBITDA, compared with 0.2x in 2024 and 0.5x in 2023 5. That increase looks manageable rather than concerning, especially because it followed a year with a EUR 1,256m dividend payment and acquisition spending on Orange Energia and renewable development portfolios 9. Gross interest-bearing debt was EUR 4,746m and liquid funds were EUR 2,903m at the end of 2025, while undrawn committed credit facilities amounted to EUR 3,806m 9. In our view, this is ample financial capacity for maintenance capex, committed decarbonisation projects and selective bolt-on growth without stretching the credit profile.

That balance-sheet strength was also visible in the latest interim data. At the end of Q1/2025, net debt had temporarily fallen to just EUR 13m and net debt to comparable EBITDA was 0.0x, because the 2024 dividend had not yet been paid 3 6. While that quarter-end snapshot was unusually strong, it reinforces the broader point that Fortum Oyj’s leverage is driven more by capital allocation choices than by operational stress. The company also retained BBB+ stable from S&P and BBB stable from Fitch in Q1/2025, which is consistent with management’s stated balance-sheet discipline 7.

Cash generation is weaker than in the peak years, but still real. Operating cash flow from continuing operations fell to EUR 840m in FY2025 from EUR 1,392m in FY2024 and EUR 1,710m in FY2023, a 39.7% decline year on year after an 18.6% decline in 2024 5. Management links the 2025 decline mainly to lower comparable EBITDA and higher working capital 9. Capital expenditure on property, plant and equipment was EUR 499m in FY2025 versus EUR 472m in FY2024, so operating cash flow still covered maintenance and growth capex by 1.7x, leaving an implied pre-acquisition free cash flow of roughly EUR 341m 9. That is not exceptional for a utility with Fortum Oyj’s asset base, but it does confirm that earnings are converting into cash rather than being absorbed entirely by capital intensity.

The latest quarterly run-rate is softer on cash than on accounting earnings, which is worth watching. Q1/2026 operating cash flow was EUR 355m, slightly below EUR 453m in Q1/2025, even though revenue and EBITDA improved year on year based on the database figures. That pattern is not unusual in utilities because collateral movements, working capital and seasonal cash taxes can distort quarterly conversion, but it does underline that Fortum Oyj should be judged on full-year cash generation rather than on a single quarter.

Overall, Fortum Oyj’s financial position looks robust enough to support its defensive investment case. Revenue and margins have normalised, and returns are below recent highs, but the company still combines an 18.8% operating margin, a 52% equity ratio and 1.2x leverage with positive free cash generation and substantial liquidity 5 9. In our view, that leaves Fortum Oyj financially well placed to fund decarbonisation, sustain dividends and absorb market volatility, even if the earnings base is now clearly less forgiving than it was in 2023 and 2024.

Corporate Transactions and M&A Assessment

Portfolio reshaping has been disciplined, with bolt-on growth now more likely than transformational M&A

Fortum Oyj’s recent transaction record suggests a company that has moved from forced simplification to selective portfolio building, and in our view that is the right sequence for a Nordic utility whose core advantage lies in low-carbon generation rather than conglomerate breadth. The most important completed portfolio action was the disposal of the recycling and waste business in 2024, which generated a tax-exempt capital gain of EUR 176m and was the main reason Other Operations revenue fell to EUR 187m in 2025 from EUR 596m in 2024 8 16. That sale also supported a very strong balance sheet entering 2025, and although leverage later rose as earnings normalized and dividends were paid, the disposal looks like effective capital recycling rather than a one-off financial patch. Management also sold the India renewables development portfolio, with the transaction signed in April 2025 and completed at the end of June 2025, further underlining the willingness to exit activities that are not central to the Nordic strategy 14 42.

What Fortum Oyj has bought is equally telling. In Q1/2025 it completed the acquisition of Enersense’s 2.6 GW early-stage onshore wind development portfolio in Finland for an enterprise value of about EUR 9m, with additional project-specific earn-outs only if projects reach investment decision 14 8. Later in 2025 it completed the acquisition of ABO Energy’s roughly 4.4 GW Finnish onshore wind development portfolio for about EUR 40m upfront, with estimated total consideration of about EUR 61m including earn-outs 14. These are small cheques relative to Fortum Oyj’s capital base, but strategically they are meaningful because they expand the company’s Nordic renewables option set to around 8 GW in permitting, while keeping capital at risk modest until demand visibility improves 6 7. We view this as a high-quality M&A template: buy development rights cheaply, preserve optionality, and avoid committing construction capital before customer demand and power-price support are clearer.

The Orange Energia acquisition in Poland follows the same logic on the customer side. Fortum Oyj completed the purchase on 30 June 2025, adding about 130,000 customers and 33 employees, and the group states that equity investments in 2025 included Orange Energia alongside the renewables portfolios 41 9. This is not a transformative deal, but it fits the stronger Consumer Solutions trajectory, where comparable EBIT rose to EUR 122m in 2025 from EUR 76m in 2024 8. In our view, small-scale customer acquisitions are more credible for Fortum Oyj than large cross-border utility mergers, because they can be integrated into an already functioning retail platform and supported by existing procurement and digital capabilities.

Looking ahead, we expect Fortum Oyj to remain selective rather than acquisitive. The company explicitly says it will choose growth projects carefully, requiring project returns above WACC by 150 to 400 basis points, and it sees about EUR 2.0bn of capital expenditure in 2026 to 2030 excluding acquisitions, plus up to EUR 2.5bn of additional investment capacity if attractive opportunities emerge 7 20. With BBB+ ratings from both S&P and Fitch and a net debt to comparable EBITDA ceiling of 2.5x in its financial targets, Fortum Oyj has room for bolt-on M&A, but not, in our view, for another large strategic swing without changing the risk profile materially 7 9. The most likely future scenarios are therefore additional development-portfolio purchases, targeted retail consolidation, and possibly flexibility-related assets. That would be consistent with a company using M&A to extend its core franchise, not redefine it.

Forecasts

Our forecasts for Fortum Oyj assume that the company remains primarily an earnings quality and cash flow story rather than a volume growth story. The key moving parts are fairly clear. Nordic power prices should stay below the extraordinary levels seen in 2022 to 2023, but plant availability should improve from the weak 2025 base, especially after the 3.9 TWh hit from lower hydro and nuclear output in 2025 6. We also assume Consumer Solutions continues to add incremental profit through margin discipline and integration benefits after delivering a record comparable EBIT of EUR 122m in 2025 8. Against that, we build in higher depreciation as the investment base rises, capex staying elevated around management’s stated 2026 level of about EUR 550m and within the broader 2026 to 2030 plan, and financing costs remaining manageable given BBB+ ratings and still moderate leverage 20 9. For tax, we anchor close to the guided 18% to 20% comparable effective rate for 2026 20.

In that framework, we expect 2026 to be a recovery year rather than a boom year. Fortum Oyj’s Q1/2026 database figures, with revenue of EUR 1,992m, EBITDA of EUR 600m and operating cash flow of EUR 355m, support the view that earnings have stabilised after the softer 2025 outcome. We therefore forecast moderate top-line growth in 2026, followed by steadier expansion in 2027 and 2028 as operational improvements, better nuclear availability and selective commercialisation of flexibility and renewables gradually feed through. This is broadly consistent with management’s ambition to lift comparable EBIT by EUR 330m by 2030 from a EUR 930m baseline, but our path is slightly more conservative in the near term because power prices remain the main swing factor 7 20.

The shape of the forecast is important. We are not assuming a return to the 2024 EBITDA peak of EUR 1,556m in the next two years, because 2024 still benefited from stronger market conditions than we consider normalised 5. Instead, our 2026 EBITDA estimate of EUR 1,325m implies only a 6.9% recovery from 2025, while our 2028 estimate of EUR 1,460m still sits 6.2% below 2024. That feels realistic for a utility where self-help can improve availability and costs, but cannot fully offset weak commodity pricing. We also keep dividend growth measured. A payout of EUR 0.79 per share in 2026 would equal about 90% of our EPS estimate, which is still at the high end of policy but acceptable if leverage remains near the current framework 7.

Management guidance is directionally supportive, but it is not a full earnings forecast, so the main analytical task is to translate operational targets into financial outcomes. In our view, management is probably slightly more optimistic than our base case on the speed of EBIT improvement, but not unreasonably so.

The biggest debate is not cost guidance, which looks credible after the EUR 100m fixed cost reduction programme was completed, but how much of the targeted EBIT uplift can be captured without help from power prices 6. We think management’s long-term target is achievable, yet the near-term path is likely bumpier than the headline suggests because Fortum Oyj still has meaningful exposure to hydrology, outages and realised power prices. That is why our 2026 operating profit forecast of EUR 1,010m only modestly exceeds the 2025 reported level of EUR 939m, even though the company’s own operational agenda is sound 5.

Scenario analysis makes that dependence more visible. In a bull case, we assume stronger Nordic prices, normalised nuclear output, and continued Consumer Solutions momentum. In a bear case, we assume weaker realised prices, another year of availability issues and slower monetisation of growth options.

The spread between scenarios is wide enough to matter. The bear case EBITDA of EUR 1,180m is only 4.8% below 2025, which underlines the defensive quality of the asset base, but EPS would still fall to EUR 0.72 if power prices disappoint and outages persist. The bull case, by contrast, does not require heroic assumptions. It mainly needs production normalisation and better market capture, which is why Fortum Oyj remains a credible recovery candidate inside a defensive utility framework. Overall, our base case is that Fortum Oyj can rebuild earnings gradually through 2028, but the pace is likely to be steadier than management’s strategic narrative implies, leaving the shares most attractive for investors who value resilient cash generation and moderate upside rather than a sharp cyclical rerating.

Valuation

Fortum Oyj’s valuation should, in our view, be framed as a balance between quality and cyclicality. The quality side is clear: the company operates a predominantly low-carbon Nordic generation fleet, retains a strong balance sheet, and still produced a 10.9% return on capital employed in FY2025 despite a weaker earnings year 5. The cyclicality is equally clear: FY2025 comparable EBIT fell to EUR 924m from EUR 1,178m as lower hydro and nuclear volumes and weaker hedge prices hit the core Generation segment 8. That combination usually warrants a valuation above heavily fossil or balance-sheet-stretched utilities, but below the kind of premium reserved for highly regulated or structurally faster-growing power names. We therefore see Fortum Oyj as best valued on a blended basis using DCF discipline and peer multiples, with history used mainly as a reasonableness check.

A DCF is particularly useful here because Fortum Oyj’s medium-term story is less about dramatic revenue expansion and more about cash conversion, operational recovery, and disciplined capital allocation. We anchor the model on a normalized free cash flow path rather than the depressed FY2025 operating cash flow of EUR 840m, which was affected by weaker earnings and working capital outflow 9. Management expects comparable EBIT to improve by EUR 330m by 2030 from a EUR 930m baseline through self-help measures such as better availability, efficiency and organic growth, excluding acquisitions and power price changes 20. We treat that target as directionally credible but not fully bankable, so our base case assumes gradual free cash flow improvement from EUR 650m in 2026 to EUR 900m in 2030, followed by a 1.5% terminal growth rate. That implies a cash flow profile consistent with a mature Nordic utility that can still improve margins and asset utilization, but not one that deserves a high-growth terminal assumption.

For the discount rate, we use a 6.8% WACC. That reflects Fortum Oyj’s BBB+ credit profile, net debt to comparable EBITDA ceiling of 2.5x in the updated financial target framework, and the relatively defensive nature of hydro, nuclear and customer operations 7 9. We do not push WACC lower because earnings remain materially exposed to Nordic power prices, hydrology and nuclear availability. On that basis, the DCF yields an enterprise value of about EUR 16,067m. After deducting FY2025 net debt of EUR 1,479m, implied equity value is about EUR 14,588m, or roughly EUR 16.26 per share based on 897.3 million shares outstanding 5 30. That theoretical value is not a target price, but it does suggest that Fortum Oyj’s worth is highly sensitive to assumptions around normalized cash generation rather than to one unusually strong or weak year.

The main message from the DCF is not that Fortum Oyj is dramatically mispriced on any single assumption set. It is that modest changes in discount rate and terminal growth move value materially, which is typical for a utility with long-duration assets. If we vary WACC between 6.3% and 7.3% and terminal growth between 1.0% and 2.0%, the implied equity value per share ranges from about EUR 14.18 to EUR 19.17. That is a fairly wide band, but it also reinforces why Fortum Oyj should trade on quality-adjusted normalized earnings rather than on spot-market sentiment alone.

Peer valuation points to a similar conclusion. Fortum Oyj deserves comparison with European integrated and low-carbon utilities rather than with pure renewable developers or fully regulated grid companies. A reasonable peer set includes Verbund, Statkraft-like hydro-heavy profiles conceptually, though unlisted, and listed names such as RWE, Endesa, EDP, Uniper’s historical profile less so after restructuring, and SSE or Enel for broader utility context. On a relative basis, Fortum Oyj should command some support from its low-carbon generation mix and balance sheet, but its merchant exposure and softer near-term earnings argue against a clear premium to the best-positioned peers.

On those indicative multiples, Fortum Oyj screens as neutral to slightly full rather than obviously cheap. A 12.0x EV/EBITDA and 16.0x EV/EBIT framework is defensible if investors are paying for asset quality, low direct emissions and a still-conservative balance sheet. However, it is harder to justify a major premium to peers such as RWE, EDP or SSE unless nuclear and hydro availability normalize clearly and management starts converting its EUR 330m EBIT improvement ambition into visible annual delivery. The P/B angle is more supportive. With equity per share at EUR 9.52 in FY2025, a valuation around 1.9x book is not stretched for a utility still earning an 8.6% return on equity and 10.9% RONA, especially given the strategic value of hydro and nuclear assets that are difficult to replicate 5. In other words, Fortum Oyj looks more reasonable on asset quality and replacement value logic than on near-term earnings multiples alone.

History also argues for moderation. The company’s own share data shows a year-end 2025 market capitalization of EUR 16,312m, after a 35% share price increase during 2025, while the stock’s effective dividend yield on the proposed FY2025 dividend was 4.1% 30. Against FY2025 comparable earnings of EUR 739m and comparable EPS of EUR 0.82, that implies investors had already rerated the shares meaningfully before the latest annual report 8 30. We therefore do not see the stock as historically distressed. Rather, it appears to be trading closer to a fair-quality utility valuation where the market is already recognizing balance-sheet strength and low-carbon positioning, but still waiting for firmer evidence of earnings reacceleration.

The final valuation judgment is therefore balanced. Fortum Oyj looks neutral to slightly attractive relative to European utility peers if one emphasizes defensive qualities, low-carbon generation and the probability of operational normalization. It looks closer to fair value if one emphasizes that FY2025 operating cash flow fell 39.7% and that earnings remain exposed to weak power prices, nuclear outages and regulatory shifts 5 24. The upside case would come from better nuclear and hydro availability, continued Consumer Solutions margin gains, and visible progress toward the targeted EUR 330m EBIT uplift by 2030 7 20. The downside case is straightforward as well: if Nordic power prices stay soft for longer, if outages persist, or if policy changes weaken investment economics, the market would likely compress Fortum Oyj toward lower peer multiples and a lower DCF range, making the shares look more like a cyclical merchant utility than a premium defensive power name.